News What is wrong with the US economy?

[turbo]

The point is that inflation hits people with low incomes or fixed incomes MUCH harder than the wealthy or the middle-class. Inflation numbers that are adjusted to remove this discrepancy are inaccurate because they do not reflect the effects of inflation of the portion of the population least likely to be able to absorb the pain. People whose wages have stagnated or fallen over the years in terms of inflation-adjusted dollars are taking it in the neck. Likewise, people who are on fixed incomes and whose cost of living adjustments are suppressed by dishonest inflation reporting are taking an additional hit, because COLA's are cumulative.

 

[quadraphonics]

The point is that inflation hits people with low incomes or fixed incomes MUCH harder than the wealthy or the middle-class.

That is simply the definition of "poor." It has nothing to do with inflation as such.

Inflation numbers that are adjusted to remove this discrepancy are inaccurate because they do not reflect the effects of inflation of the portion of the population least likely to be able to absorb the pain.

First of all, the removal of food and energy prices does not in any way mask the effects of poverty. It may be that in some months the food and energy bills go up by more than the CPI, and in other months by less, but in the long run they match up, and that is the point. A functional monetary policy needs to be based on long-term, systemic factors, not the weekly fluctuation in the price of a load of bread. Keeping people fed during volatile periods is a question of social policy, not accounting. Second of all, the point of an inflation indictor is exactly that: to indicate how much inflation has occurred. It is emphatically not a political instrument for spotlighting the social conditions of the poor, nor should it be.

And, again, including food and energy costs would have resulted in a negative inflation number for recent months, and so, under your logic, their removal is actually *hiding* the fact that the poor have it much *easier* lately. You seem committed to the idea that there is some systemic underestimation of cost-of-living increases, which is not the case. There is simply reduced volatility, and delay.

People whose wages have stagnated or fallen over the years in terms of inflation-adjusted dollars are taking it in the neck.

Yes, and using a volatile measure of inflation won't change that. It will simply make it impossible to pursue a functional monetary policy, and so cause *everyone* to take it in the neck, especially the poor.

Likewise, people who are on fixed incomes and whose cost of living adjustments are suppressed by dishonest inflation reporting are taking an additional hit, because COLA's are cumulative.

It's not dishonest, it's simply lagged. All filters exhibit latency; it is the price of their functioning. In this case, the function is important, as it results in a useful measure of inflation, which in turn is crucial to functional monetary policy. The downside is not that the overall, long-run inflation figures are wrong (far from it), but that a given person's monthly expenses are necessarily more volatile than the CPI, as they obviously include food and energy. And, of course, the poorer you are, the larger a portion of your expenses food and energy represent, and the fewer reserves you have to get through volatile periods. But the answer to that is not to break the CPI by making it volatile (and in the process imposing partisan social ideology onto government accounting, not to mention boosting unemployment), but to pursue social policies that enable people to deal with said volatility, or reduce it in the first place. A separate, volatile deflator that does include food and energy prices could well be useful here, but it should never replace the CPI, which is a cornerstone of monetary policy.

 

[turbo]

But the answer to that is not to break the CPI by making it volatile (and in the process imposing partisan social ideology onto government accounting, not to mention boosting unemployment), but to pursue social policies that enable people to deal with said volatility, or reduce it in the first place. A separate, volatile deflator that does include food and energy prices could well be useful here, but it should never replace the CPI, which is a cornerstone of monetary policy.

You miss the point. Removing staples with volatile prices from the inflation numbers inserts right-wing (not conservative - there IS a big difference) ideology into economic reporting to suit the regressive fiscal policies of the wealthiest. People who have presided over the transfer of money from the lower classes to the wealthy for decades.

 

[quadraphonics]

You miss the point. Removing staples with volatile prices from the inflation numbers inserts right-wing ideology into economic reporting to suit the regressive fiscal policies of the wealthiest.

This is quackery.

 

[turbo]

This is quackery.

Please give specifics, not cheerleading. If you can show how deleting the inflationary pressures of staples with volatile prices HELPS the lower classes and hinders the wealthy, I'll kiss your *** in front of town hall at noon and give you an hour to draw a crowd. Cheerleading for neo-cons is pretty popular these days, but it doesn't pay too much unless you are pulling down in the high 6-figures or more. Economics is not a zero-sum game, and nobody but the most ill-informed or dishonest will present economic arguments as such.

 

[quadraphonics]

Please give specifics, not cheerleading. If you can show how deleting the inflationary pressures of staples with volatile prices HELPS the lower classes and hinders the wealthy,

I've already twice pointed out that the CPI is currently dramatically overstating the growth in monthly expenses for poor households, because energy prices are currently dropping, even as the CPI remains positive. I've also pointed out that a volatile CPI would render monetary policy inefficient, and so increase both unemployment and inflation, which would hurt the poor most of all. I suggest that you respond to these salient point before issuing calls for specifics. Your failure to do so thus far has me convinced that you don't have much idea what you're talking about, or interest in discussing it honestly.

Furthermore, I never said that the current composition of the CPI is structurally biased towards the poor. The point is that it is not structurally biased towards any socioeconomic group *at all*. In the long run, it does reflect any sustained increases in food or energy costs. Your response has been to allege some vague, unsubstantiated conspiracy to systematically underreport inflation as a means of reducing support for socialist policies. Please don't insult me by pretending that the fact deficit is on my side of the debate.

I'll kiss your *** in front of town hall at noon and give you an hour to draw a crowd. Cheerleading for neo-cons is pretty popular these days, but it doesn't pay too much unless you are pulling down in the high 6-figures or more. Economics is not a zero-sum game, and nobody but the most ill-informed or dishonest will present economic arguments as such.

Sorry, was this supposed to disuade me that you're a quack?

 

[turbo]

OK, anybody that suggests that current economic reporting is inaccurate is a quack, with NO substantiation on you part. That kind of argumentation falls into the Peewee Herman "neener, neener, neener" category. Can you refute anything that I have posted?

 

[quadraphonics]

OK, anybody that suggests that current economic reporting is inaccurate is a quack,

No, just people who suggest that it is a conspiracy to undermine socialism, without any substantiation at all. Most people who complain about the composition of the CPI are simply ignorant of how it works. Anyway, there is no shortage of economics reporting that emphasizes the plight of poor, or blue-collar families. Indeed, this is pretty much the entirety of economic reporting in many mass media. The CPI is a technical measure for use by people trained in economics; that it could potentially be abused by oligarchy-friendly propagandists in certain transient circumstances (i.e., when food and fuel are increasing faster than the CPI) is not a problem with the CPI. It's a problem with freedom of speech. Fortunately, there are no shortage of middle-class-friendly propagandists reminding us about food and energy bills and so counteract their influence.

with NO substantiation on you part.

Seems plenty substantiative to me. Exactly what does it take to substantiate a charge of conspiracy theory, besides demonstrating a willful obliviousness to relevant facts and conflicting explanations?

That kind of argumentation falls into the Peewee Herman "neener, neener, neener" category.

You mean, like calling someone a neocon cheerleader because they don't subscribe to your conspiracy theories?

Can you refute anything that I have posted?

I've already amply refuted the few factual elements of your posts, and reiterated these points repeatedly in the face of your continuing ignorance of them. Feel free to respond to them in a substantiative way, or to persist in ignoring them and issuing childish "you can't make me admit I'm wrong" challenges. But be aware that I have no particular interest in getting you to admit that you're wrong. It's sufficient for me to present a vastly more compelling argument.

 

[Art]

A key measure of a gov'ts aptitude is it's ability to manage inflation. It does not take a wild leap of imagination to think that the gov't just might want to portray figures that show it in the best light.

CPI stand for consumer price index. It is supposed to show how the average consumer's spending bill changes each month against a reference month. As the average consumer buys food, gas and electricity it seems remiss to leave them out.

 

[quadraphonics]

A key measure of a gov'ts aptitude is it's ability to manage inflation. It does not take a wild leap of imagination to think that the gov't just might want to portray figures that show it in the best light.

No it doesn't, and any number of banana republics have been caught doing so. But another key measure of a government's aptitude is its ability to maintain public confidence and so the ability to govern effectively. It does not take a wild leap of imagination to think that a government might not want to take such an illegal, easily-detected step.

CPI stand for consumer price index. It is supposed to show how the average consumer's spending bill changes each month against a reference month. As the average consumer buys food, gas and electricity it seems remiss to leave them out.

Actually, I've been using the wrong acronym: the CPI does include food and energy. It's the PCE (which is used by the Fed) that excludes them. But it makes little difference when you consider that the cost of food and energy is already factored into the price of everything else that they buy, in the long run. It takes energy to produce and distribute things, and labor to do it, who in turn demand wages that will cover their food and energy bills.

 

[wildman]

No it doesn't, and any number of banana republics have been caught doing so. But another key measure of a government's aptitude is its ability to maintain public confidence and so the ability to govern effectively. It does not take a wild leap of imagination to think that a government might not want to take such an illegal, easily-detected step.



Actually, I've been using the wrong acronym: the CPI does include food and energy. It's the PCE (which is used by the Fed) that excludes them. But it makes little difference when you consider that the cost of food and energy is already factored into the price of everything else that they buy, in the long run. It takes energy to produce and distribute things, and labor to do it, who in turn demand wages that will cover their food and energy bills.

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

 

[Art]

No it doesn't, and any number of banana republics have been caught doing so. But another key measure of a government's aptitude is its ability to maintain public confidence and so the ability to govern effectively. It does not take a wild leap of imagination to think that a government might not want to take such an illegal, easily-detected step.
Actually, I've been using the wrong acronym: the CPI does include food and energy. It's the PCE (which is used by the Fed) that excludes them. But it makes little difference when you consider that the cost of food and energy is already factored into the price of everything else that they buy, in the long run. It takes energy to produce and distribute things, and labor to do it, who in turn demand wages that will cover their food and energy bills.

So you should apologise to Turbo for your statement

you don't have much idea what you're talking about

when it now transpires everybody else was talking about apples whilst you were talking about oranges whilst calling them apples Your argument re volatility is especially confusing now as the published inflation figures are from the CPI index (or CPI-U to be pedantic) and also because although the PCE does not include your volatile elements it runs at a steady 1/3% point less than the CPI.

And please drop the hyperbole. Nobody is suggesting the gov't is doing anything illegal. They are perfectly entitled to construct their metrics any way they like but if people think they are doing so as a smoke screen then they are perfectly entitled to call them on it.

 

[mheslep]

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

Source? Rather, if you take some time to run that down you'll find otherwise.

 

[quadraphonics]

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

The estimated numbers I've heard run closer to 7%, but the point is that there are good reasons that the way inflation is accounted was changed. You're free to disagree with them, of course, but presumptions that they are necessarily invalid, absent some substantiating argument, are not particularly impressive.

 

[quadraphonics]

So you should apologise to Turbo for your statement when it now transpires everybody else was talking about apples whilst you were talking about oranges whilst calling them apples

That I used the wrong acronym does not have any bearing on my observation that turbo doesn't know what he's talking about.

Your argument re volatility is especially confusing now as the published inflation figures are from the CPI index (or CPI-U to be pedantic)

The CPI and PCE are both "published." Nowhere did anyone say they were referring to the CPI; the complaint was that "the inflation numbers" don't include food and energy. My arguments apply exactly to those numbers (i.e., the PCE). To the extent that complainers are referring to the CPI, they're simply mistaken. Either way, there is no basis for the complaints.

and also because although the PCE does not include your volatile elements it runs at a steady 1/3% point less than the CPI.

That difference has nothing to do with the volatile elements, and everything to do with differences in methodology. You can remove the volatile elements from *both* measures, and the difference remains:

http://www.bea.gov/papers/pdf/Moyer_NABE.pdf

They are perfectly entitled to construct their metrics any way they like but if people think they are doing so as a smoke screen then they are perfectly entitled to call them on it.

And I am perfectly entitled to call them on their total lack of substance in said charges, as well as the transparent political bias that motivates them. But go ahead and continue attempting to condescend to me if it makes you feel better.

 

[Jimmy Snyder]

The inflation figures have been low ever since Clinton changed the way they are reported. If one figured it in the same manner as it was figured during the Carter years, the yearly inflation rate would be about 12%.

Carter's Presidency ended in 1981. If the yearly inflation rate had been 12%, then prices would have risen more than 20 times. Did they? How much was a gallon of gas in 1981? How much was an ipod?

 

[Art]

That I used the wrong acronym does not have any bearing on my observation that turbo doesn't know what he's talking about.

You were talking about a different metric entirely. It isn't that you referred to the wrong acronym, your statements referred to an entirely different index created through an entirely different methodology and then you have the cheek to say other people don't know what they are talking about. You crack me up

You should note your attempts at obfuscation do nothing for your credibility.

The CPI and PCE are both "published." Nowhere did anyone say they were referring to the CPI; the complaint was that "the inflation numbers" don't include food and energy. My arguments apply exactly to those numbers (i.e., the PCE). To the extent that complainers are referring to the CPI, they're simply mistaken. Either way, there is no basis for the complaints.

The inflation figures published each month for the public's information and quoted far and wide are taken from the CPI index and in several of your posts above you yourself referred specifically to the CPI and no amount of weasel wording by you will change that simple fact. Showing other folk also made errors doesn't negate yours and I would quite happily take them to task for it too if I wasn't spending so much time trying to persuade you to admit you were wrong

That difference has nothing to do with the volatile elements, and everything to do with differences in methodology. You can remove the volatile elements from *both* measures, and the difference remains:

YOU are the one who said the volatile factors are removed from the CPI inflation figures to negate wild swings. Now that you know the CPI contains these volatile elements where are the wild swings you spoke of?? Your core argument re the gov't removing volatile elements from the widely published CPI inflation figures for the sake of stability has now been proven to be just plain nonsense.

And I am perfectly entitled to call them on their total lack of substance in said charges, as well as the transparent political bias that motivates them. But go ahead and continue attempting to condescend to me if it makes you feel better.

Asking you to refrain from creating strawmen through hyperbole is not condescending to you. And you are indeed entitled to call people on their mistakes but not by using erroneous information to refute their arguments and then complaining when you are called on it.

 

[Art]

Source? Rather, if you take some time to run that down you'll find otherwise.

The Boskin commission which made the recommendations to change how the CPI was formulated proceeded from the premise that the CPI at the time overstated inflation by between 1.1% and 1.6%. It seems reasonable to assume that the reformulated metric reduced reported inflation by that amount.

I have no opinion on the validity of their assertion that inflation was being over stated other than to note lower inflation figures help companies, as wage demands are based on the CPI (affecting 80 million people whose wage income is directly linked to the CPI) and the gov't, as pensions and social service payments are geared to the CPI (another 52 million people). It is fair to say that the adjustments made were to the serious detriment (due to the compound effect) of the less well-off and that no other major economic power copied their changes.

 

[quadraphonics]

You were talking about a different metric entirely.

Nonsense. I responded to complaints about "inflation numbers that don't include food and energy" by explaining why such items are excluded. I mistakenly referred to this index as the CPI, rather than the PCE. If the complainers were referring to the CPI, then they are simply wrong about exclusion of food and energy. If they're referring to the PCE, then my explanation applies. It's simply a matter of using an incorrect acronym and, in either case, the complaints are unfounded.

The inflation figures published each month for the public's information and quoted far and wide are taken from the CPI index and in several of your posts above you yourself referred specifically to the CPI and no amount of weasel wording by you will change that simple fact.

Which is why I came out and honestly admitted that I was using the wrong name. The only reason you are even aware of the different indices is because I have the integrity to double-check my statements and admit when I make an error. In this case the error is insignificant. Your attempts to exploit my honesty as a means of attacking me are both unimpressive and petty.

Showing other folk also made errors doesn't negate yours and I would quite happily take them to task for it too if I wasn't spending so much time trying to persuade you to admit you were wrong

Again, the only reason you are even aware of the trivial error I made is because I proactively found and admitted it. What you're doing is trying to exaggerate the magnitude of this error and mischaracterize my statements.

YOU are the one who said the volatile factors are removed from the CPI inflation figures to negate wild swings. Now that you know the CPI contains these volatile elements where are the wild swings you spoke of??

See page 6 of http://www.bls.gov/cpi/cpid0807.pdf

Your core argument re the gov't removing volatile elements from the widely published CPI inflation figures for the sake of stability has now been proven to be just plain nonsense.

No, it is exactly what is done with the PCE, which is also widely published, as it is one of the two bases for monetary policy. For that matter, there is a version of the CPI with the food and energy removed, for the exact same reasons. The only mistake was the name of the acronym used. The argument was presented in reference to complaints about "inflation numbers with food and energy removed," and it applies to any such numbers exactly, whether they are the PCE, or the food-and-energy-discounted-CPI (which is also widely published).

And you are indeed entitled to call people on their mistakes but not by using erroneous information to refute their arguments and then complaining when you are called on it.

Nobody called me on erroneous information. I located my own errors, and proactively admitted to them. Why wouldn't I, when it was a trivial error of using the wrong acronym? None of the substance of my argument is erroneous;

 

[quadraphonics]

The Boskin commission which made the recommendations to change how the CPI was formulated proceeded from the premise that the CPI at the time overstated inflation by between 1.1% and 1.6%. It seems reasonable to assume that the reformulated metric reduced reported inflation by that amount.

It is not necessary to assume anything when one has access to Google and a few minutes of time:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=910843

Recent research at the NBER indicates that the changes stemming from the Boskin commission reduced reported inflation by around 0.6%, and that there is still around 1% overestimation of inflation in the CPI-U.

I have no opinion on the validity of their assertion that inflation was being over stated other than to note lower inflation figures help companies, as wage demands are based on the CPI (affecting 80 million people whose wage income is directly linked to the CPI) and the gov't, as pensions and social service payments are geared to the CPI (another 52 million people).

There is no meaningful causal link between the CPI and the wages paid by private companies. Wage demands are linked to how much workers are making, how far that money is going, and how much more they think they can get out of their employers. If the CPI is underestimating inflation, then it is also underestimating worker pressure for wage increases. It is only a small subset of workers with contractual cost-of-living increases that are directly affected by the CPI. Even if wages are kept artificially low (something you have not provided any evidence for), this does not necessarily help companies at the expense of "workers," in that, in a competitive environment, the savings in wages are passed on to consumers in the form of lower prices. Which is to say that, to the extent that wages are lower, they also go farther. Said another way, systematic increases in wages result directly in compensatory inflation.

Likewise, monkeying with the CPI has little effect on popular support for economic policies for the exact same reason: people know exactly how their monthly expenses change over time, and no pronouncements from the BLS or NBER are going to change their minds about that.

Moreover, there are numerous ways in which underestimation of inflation (were it occurring) would help workers, the poor, etc. Specifically, systematic underestimation of inflation would lead to systematic under-setting of interest rates, which would in turn systematically decrease unemployment, make it easier to purchase houses, etc.

It is fair to say that the adjustments made were to the serious detriment (due to the compound effect) of the less well-off

Hardly. The only group whose income can be directly tied to the CPI are retirees, which are hardly synonymous with "the less well-off."

and that no other major economic power copied their changes.

That's because most other major economic powers already had mechanisms included in their inflation accounting to adjust for the types of bias discussed in the Boskin report. Those that did not, we should note, tend to make up the difference by systematically setting lower inflation targets than are used in the United States.

 

[Art]

Quadrophonics You do know personal insults are not allowed on this forum?

In light of your extremely bad manners I can't be bothered to respond to your posts any more.

 

[quadraphonics]

Quadrophonics You do know personal insults are not allowed on this forum?

In light of your extremely bad manners I can't be bothered to respond to your posts any more.

Nice cop-out. Anyway, please make a point of adhering to this pledge; your responses are unwelcome.

 

[turbo]

August unemployment rate jumps to 6.1%. A 5-year high.

http://news.yahoo.com/s/ap/20080905/ap_on_bi_go_ec_fi/economy;_ylt=ArPkFMAAsahRe89_iFDs5DCs0NUE

 

[ramsey2879]

The only group whose income can be directly tied to the CPI are retirees, which are hardly synonymous with "the less well-off."

What about those who were force to retire early because of company downsizing, disability or age restrictions.

 

[Astronuc]

Government apparently will take over Fannie Mae and Freddie Mac.
http://news.yahoo.com/s/ap/20080906/ap_on_bi_ge/mortgage_giants_crisis

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

. . . .

The only reason the GDP is positive is that the government is borrowing money resulting in chronic deficits and debt accumulation.

http://en.wikipedia.org/wiki/United_States_federal_budget#Deficit_Spending_and_Increases_in_the_Debt

After the budget deficit shrank for a third straight year, to $163 billion in fiscal 2007, the White House in February projected a $410 billion budget deficit for fiscal 2008, just shy of the $413 billion record gap in fiscal 2004. Updated White House forecasts are expected later this month.

http://www.reuters.com/article/businessNews/idUSWAT00978320080715


http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

$431,270,863,309.37 so far in fiscal 2008.

Go figure this - http://www.whitehouse.gov/omb/budget/fy2008/pdf/spec.pdf

So what expenditures should the government cut?

 

[russ_watters]

Yes, the economic stimulus package (the checks) increased this years' deficit in order to keep the GDP positive. But it may turn out that it was timed and sized perfectly to prevent a recession.

 

[edward]

The government take over of Fannie Mae And Freddie Mac is another example of privatizing profits and socializing losses.

There is still no light at the end of the tunnel for mortgage default problems. All of those LIAR and NINJA loans (no income, no job or assets) took a heavy toll.

Everybody drank the Kool-Aid" said David Zugheri, co-founder of Texas-based lender First Houston Mortgage. They knew if they didn't give the borrower the loan they wanted, the borrower "could go down the street and get that loan somewhere else."

The loans were also immensely profitable for the mortgage industry because they carried higher fees and higher interest rates. A broker who signed up a borrower for a liar loan could reap as much as $15,000 in fees for a $300,000 loan. Traditional lending is far less lucrative, netting brokers around $2,000 to $4,000 in fees for a fixed-rate loan.

EDIT:

Fannie Mae and Freddie Mac, the nation's largest buyers and backers of mortgages, lost a combined $3.1 billion between April and June. Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.

http://ap.google.com/article/ALeqM5jhZwMfeNXfD5OvIA8NL8X6uDUPFAD92KRKL00

Defaults on prime adjustable rate mortgages are still increasing.

http://washingtontimes.com/news/2008/sep/06/mortgage-paying-problems-spreading/

 

[Astronuc]

Yes, the economic stimulus package (the checks) increased this years' deficit in order to keep the GDP positive. But it may turn out that it was timed and sized perfectly to prevent a recession.

The only reason the GDP is positive is government borrowing. Then again it may not be sufficient to prevent recession.

It's a bit like a company declaring a profit when it's net income is all based on borrowed money.

Some politicians and economists have argued that the U.S. can "grow its way" out of these fiscal challenges. Their argument is that economic growth (driven by tax cuts, productivity improvements, and borrowing) will generate sufficient tax revenue to offset growing entitlement spending. However, the GAO has estimated that double-digit GDP growth would be required for the next 75 years to do so; GDP growth averaged 3.2% during the 1990's.

http://en.wikipedia.org/wiki/United_States_federal_budget#Can_the_U.S._Outgrow_the_Problem.3F

There appears to be a long term trend of decreasing GPD growth.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=274
http://research.stlouisfed.org/fred2/data/GDP.txt

And we still have a strong trade deficit, which has yet to show a significant decrease or turn over to positive.

 

[mheslep]

The government take over of Fannie Mae And Freddie Mac is another example of privatizing profits and socializing losses.

Agreed, if the takeover happens. If it does then the entire upper management structure should be, needs to be, fired. Similarly share holders need to lose. All of that _before_ the treasury pays a dime, which it may need to do.

 

[mheslep]

...
So what expenditures should the government cut?

My preference:
-Agriculture subsidies http://en.wikipedia.org/wiki/Agricultural_subsidies#United_States"
-Defense spending, the DoD programs not Iraq/Afghanistan could lose ~$50B/year. I'm for a strong defense but spending a lot of money on it does not guarantee one. Slash missile defense (too little bang for the buck) and don't deploy the new AF fighters.
-http://fas.org/sgp//crs/misc/m012606.pdf" , all of them: $30B/year
-Kill the Dept of Education, let the states and the people keep the money. $80B/year

But this is all minor. The entitlements social security, medicare, medicaid dwarf the rest. The government either needs to get out of the health care business or take it over.
http://www.heritage.org/Research/Budget/upload/93690_1.pdf

 

[aquitaine]

The only reason the GDP is positive is government borrowing.

Don't forget the fudged inflation numbers as well. See my earlier posts about that.

It's a bit like a company declaring a profit when it's net income is all based on borrowed money.

Didn't Enron do something like that?

Yes, the economic stimulus package (the checks) increased this years' deficit in order to keep the GDP positive. But it may turn out that it was timed and sized perfectly to prevent a recession.

Ever the optimist, but all that did was create what economists call a "dead cat bounce". From what I heard it will probably get worse. later on. The financial system is rotten to the core, and that makes it's collapse inevitable.

 

[russ_watters]

The government take over of Fannie Mae And Freddie Mac is another example of privatizing profits and socializing losses.

I haven't read up on that much, but as one might expect, I'm not a fan of the general idea of socializing businesses, especially as a bailout.

 

[russ_watters]

There appears to be a long term trend of decreasing GPD growth.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=274
http://research.stlouisfed.org/fred2/data/GDP.txt

The first link shows only one cycle, so it is incorrect to associate a long term trend with it. The second doesn't include correction for inflation, so it doesn't reflect true growth. I threw it into Excel and graphed the growth at 1 year intervals and it shows the 70s as a time of very high growth and doesn't show a negative GDP year since 1960.

And we still have a strong trade deficit, which has yet to show a significant decrease or turn over to positive.

Throw the word "deficit" in there and people automatically assume it is a bad thing. I have yet to hear a convincing argument that it is an unequivocably bad thing. Certainly, it is a debateable issue:

Modern economists are split on the economic impact of the trade deficit with opponents viewing it as a long run drag on GDP and employment with high social costs while proponents claim it is a sign of economic strength.

http://en.wikipedia.org/wiki/Balance_of_trade

 

[russ_watters]

Don't forget the fudged inflation numbers as well. See my earlier posts about that.

Looking at it again won't make it any less wrong.

Didn't Enron do something like that?

No, that isn't anywhere near the same as what Enron did.

Ever the optimist, but all that did was create what economists call a "dead cat bounce". From what I heard it will probably get worse. later on. The financial system is rotten to the core, and that makes it's collapse inevitable.

And where have you heard this? Where will this "worse" come from? Despite the worst housing and financial sectors in decades, the rest of the economy has been doing just fine. If those don't get much worse (and really - how could they?) then a recovery is on its way.

All in all, what we are in now looks like nothing more than an unusually mild downside of a normal economic cycle.

 

[wildman]

I'm actually looking forward to see what will happen. I am wondering who is right. Interesting arguments.

 

[aquitaine]

Looking at it again won't make it any less wrong.

Your failure to present any convincing evidence than I'm NOT wrong is your problem, not mine. In fact you haven't presented any evidence whatsoever that I'm wrong.

No, that isn't anywhere near the same as what Enron did.

How so?

And where have you heard this?

People who know what they are talking about.

Where will this "worse" come from? Despite the worst housing and financial sectors in decades, the rest of the economy has been doing just fine. If those don't get much worse (and really - how could they?) then a recovery is on its way.

More bad debt. We don't really know how good or bad our banks are because they have a very bad habit of hiding their debts. There was supposed to be a new FASB rule change that would have put a stop to this practice and force the banks to disclose the true amount of bad debt, but because of this crisis implementation was pushed back from January '09 to January '10, so we won't know for another year and a half how good or bad our banks are.

So, when is this recovery supposed to happen? Later this year? Guess we'll find out soon enough.

 

[russ_watters]

Your failure to present any convincing evidence than I'm NOT wrong is your problem, not mine. In fact you haven't presented any evidence whatsoever that I'm wrong.

Basically your whole position was that you think the statistics are lies. You choose to believe whatever you want. Fine. Either way, there really isn't anything to argue here - I just wanted to point out for others that there is no agreement on that.

BTW, that makes your position basically conspiracy theory. It isn't mainstream economics.

So, when is this recovery supposed to happen? Later this year? Guess we'll find out soon enough.

Yes, later this year (unless it has already happened - the GDP isn't doing half bad right now). The 3rd quarter is projected to be worse than the 2nd, and then the 4th to be better again. But note, "recovery" is a relative thing and a tough word to use here - what are we recovering from? It is now all but certain that the economic slowdown will not be termed a "recession" - it was nowhere near deep enough for that term to be accurate. So we're recovering from a minor slowdown.

I could see some hedge words used to still allow the use of the word "recession", but they'd have to be things like "housing and finance recession", emphasising that only those specific sectors experienced a recession. Their down market, however, has probably not hit bottom yet (though it is probably close). Perhaps in a few months it will start back up, but it'll probably be at least another year before it really shows some strength.

How so?

It's pretty tough to explain a negative to a one-liner that has little real meaning. You think they are similar. You need to justify it. In short, though, ENRON was just basic fraud. National economic data is not.

 

[Gokul43201]

Socialized mortgage?

U.S. seizes Fannie and Freddie
Treasury chief Paulson unveils historic government takeover of twin mortgage buyers. Top executives are out.

NEW YORK (CNNMoney.com) -- Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.

The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices.

The sweeping plan, announced by Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.

http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?postversion=2008090711

 

[Astronuc]

My preference:
-Agriculture subsidies http://en.wikipedia.org/wiki/Agricultural_subsidies#United_States"
-Defense spending, the DoD programs not Iraq/Afghanistan could lose ~$50B/year. I'm for a strong defense but spending a lot of money on it does not guarantee one. Slash missile defense (too little bang for the buck) and don't deploy the new AF fighters.
-http://fas.org/sgp//crs/misc/m012606.pdf" , all of them: $30B/year
-Kill the Dept of Education, let the states and the people keep the money. $80B/year

But this is all minor. The entitlements social security, medicare, medicaid dwarf the rest. The government either needs to get out of the health care business or take it over.
http://www.heritage.org/Research/Budget/upload/93690_1.pdf

My latest statement from Social Security Admin is that the SSAccounts will by depleted by 2014.

Given the current situation in the financial markets - bad debt, massive losses - I don't see a private account as helping. If the investment companies lose the money, then what? The government bails them out - with money it doesn't have?


To supplement what Gokul posted on Fannie Mae/Freddie Mac -
A look at the Fannie and Freddie bailout
http://marketplace.publicradio.org/display/web/2008/09/08/bailout/

Scott Jagow: Well, it's happened again. The government has stepped in and announced another bailout. This time of the mortgage companies Fannie Mae and Freddie Mac. A lot of people see this as a sign of just how much the financial system stinks right now, but the markets are rejoicing. We'll get to that in a minute. First, let's take a look at this plan.

John Dimsdale: Secretary Paulson said he needed to save Americans' access to home loans, auto loans and other consumer credit.

Tape of Henry Paulson: Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in the financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth from family budgets to home values to savings for college and retirement.

Treasury will inject government capital and credit as needed over the next 16 months so the mortgage underwriters don't run out of money. Douglas Elmendorf at the Brookings Institution agrees with Paulson's claim that incremental payments are better for taxpayers than one big bailout.

Douglas Elmendorf: The crucial step is that if Fannie Mae and Freddie Mac were covered financially after the government has put in money, that the returns for that would go to the taxpayers not to the current shareholders.

Secretary Paulson says when mortgage rates go too high, the government will buy Fannie and Freddie's mortgage-backed securities to ease those rates, but that worries Elmendorf.

Bailout: Why, why now and what next?
http://marketplace.publicradio.org/display/web/2008/09/08/stanton_q/

Bob Moon: It's official: The giant mortgage underwriters Fannie Mae and Freddie Mac are being taken over by the government. The move could potentially cost taxpayers $200 billion, but it could also help reverse the housing and credit crisis. Treasury Secretary Henry Paulson says the cost of allowing the companies to fail could take an even higher told on our wallets.

. . . .

Moon: Why did the government have to take this action and why now?

Stanton: The government had to step in because Fannie and Freddie were undercapitalized and were under immense stress. And what we've learned from past bank and savings and loan failures is that when management comes under that kind of pressure they may feel the need to do something imprudent, take a big risk to try to recoup their losses.

Moon: Has the government maneuvered correctly here? This seems to be a pretty delicate dance.

Stanton: I think the government has done an excellent job. Secretary Paulson has essentially stepped in and figured out a way to reassure both the financial markets -- and particularly foreign investors in Fannie and Freddie's debt obligations, mortgage-backed securities -- and also assure that Fannie and Freddie continue to provide and be a conduit for federal support. There's a second step to this process. The business model of this half-public, half-private government sponsored enterprise has failed us and failed us pretty badly. The Treasury's power to do what they're doing go away Dec. 31, 2009. Secretary Paulson basically tossed the problem back to Congress and said, "Congress, you have got to decide where we're going with these two huge multi-trillion dollar institutions."
. . . .

I think those managers should give back their bonuses and forfeit their pensions - they certainly did not earn them.

I think if corporations default on pensions for the rank and file workers, CEO's and officers should forfeit their pensions as well. That's only fair.

 

[aquitaine]

BTW, that makes your position basically conspiracy theory. It isn't mainstream economics.

So MSN Money is now promoting conspiracy theories? Wow.

 

[Astronuc]

Fannie's Daniel Mudd could get $9.3 million in severance pay, retirement benefits and deferred compensation if his dismissal is "without cause," the consulting firm James F. Reda & Associates told the Times.

And Freddie's Richard Syron could get a package valued at $14.1 million after a clause was added to his employment contract in mid-July, the Times reported.

These guys are unbelieveable. Executive compensation, at least in this case, is ridiculous.

They aren't risking their money (the company is risking other peoples money), they aren't doing day to day investments, they didn't steer their companies clear of trouble, . . . .

 

[turbo]

These bailouts are another example of faux "conservatives" privatizing profits and socializing risks. Surely, firing these guys is not "without cause" after the risks they took.

 

[mheslep]

My latest statement from Social Security Admin is that the SSAccounts will by depleted by 2014...

I was hoping to prompt your own preferences for budget cuts?

 

[edward]

I was hoping to prompt your own preferences for budget cuts?

A good place to start would be to eliminate the Pentagon's spending on every stupid gadget possible.

http://www.smm.org/buzz/blog/bursts/robotic_horse_video

$10,000,000 for this turkey that some college kids could have built for $5,000, was a total waste. Chain saw engines aren't exactly stealthy

 

[Astronuc]

For now, I'd cut 15-20% across the board. Then I'd take a detailed look at each item, to see why the US government is spending those amounts. $80 billion on education!? That seems excessive.

Basically I'd run a slight surplus, and I'd raise some taxes, and eliminate tax credits.

I'd weight corporate taxes based on the ratio of highest paid (total compensation) to lowest paid employee, in order to discourage excessive compensation of CEO's and management. If a company forfeits pensions for wage and salary earners, then the CEO and managers forfeit there's.

Grants would be replaced by some structured loan so as to recover the investment.

I'd also be investigating a lot of earmarks.

I'd cut the Congressional salaries 30%. I don't think they've earned it.

 

[mheslep]

...$10,000,000 for this turkey that some college kids could have built for $5,000, was a total waste.

No 'college kids' could have built Big Dog or anything close to it. At the moment Big Dog is the most advanced ambulatory robot prototype in the world.

 

[mheslep]

For now, I'd cut 15-20% across the board. ...

Brassy. Across the board, you'd cut $112B from SSN checks, $70B from Medicare, $40B from Medicaid, $8B from unemployment benefits, and so on? I think the Astronuc administration is in for some trouble, even if it has the best interests of the country at heart.

 

[edward]

No 'college kids' could have built Big Dog or anything close to it. At the moment Big Dog is the most advanced ambulatory robot prototype in the world.

Yet exactly what is the military going to do with it? They couldn't kick it over, big deal, try kicking both ends at the same time. Plain old fashioned pack mules have been used successfully in Afghanistan.

More Pentagon waste: $300 Billion Down the Tubes: Shocking Wasteful Spending on Weapons Systems:

http://www.alternet.org/workplace/87843/$300_billion_down_the_tubes:_shocking_wasteful_spending_on_weapons_systems/

 

[Astronuc]

Brassy. Across the board, you'd cut $112B from SSN checks, $70B from Medicare, $40B from Medicaid, $8B from unemployment benefits, and so on? I think the Astronuc administration is in for some trouble, even if it has the best interests of the country at heart.

Well - people would have a choice - either we raise taxes, or we cut expenses - while we have a choice. At some point in the future, we will not have a choice - except to default or cancel interest payments on the debt. There is no growing the economy out the problems of chronic deficit spending.

 

[mheslep]

Yet exactly what is the military going to do with it? They couldn't kick it over, big deal, try kicking both ends at the same time.

Edward its an experimental prototype, and its a big advance in the state of the art for robotics.

Plain old fashioned pack mules have been used successfully in Afghanistan. ...

Well if you can find a pack mule to which you can embed a radio and then send it back by itself for more amo you are in business.